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Acquiring new customers is far from cheap. That’s why it’s always surprising to realize how much time and energy most businesses spend on customer acquisition, only to neglect their retention strategy.
Businesses pour so many resources into acquiring customers that it only makes sense to strive for long-term customer loyalty. In fact, it can cost 6 to 7 times more to land a new customer than to retain an existing one.
Not only is focusing on retention more cost-effective, it can also boost profit margins. Research shows that increasing customer retention by just 5% can provide a serious return on investment, increasing profits by 25-95%!
This means brands that inspire customer loyalty have a huge competitive advantage over those that only focus on finding new customers.
So, do you want to create irresistible experiences that bring customers back again and again? Let’s look at how your business can inspire, measure, and reap the rewards of long-term customer loyalty.
Defining Customer Loyalty
Customer loyalty is a customer’s affinity for a particular brand and likelihood of purchasing from them again rather than switching to a competitor.
Customer loyalty can stem from a positive first experience with the business, exceptional customer service, as well as the buyer’s satisfaction with their purchase.
The Benefits of Providing Amazing Customer Service
Regardless of industry, product, or customer type, having loyal customers is one of the biggest competitive advantages a business can have. Building up a tribe of loyal customers can even help your business grow more quickly than sales and marketing – and at a much lower cost to you.
Customer service plays a major role in inspiring customer loyalty. In fact, 72% of customers say great customer service is what makes them loyal to a brand.
As a result, businesses that provide high-quality customer service and cultivate loyalty experience a wide range of benefits, including:
1. More Spending Per Customer
Long-term customers who are loyal to your business tend to spend more per purchase than one-off buyers. In fact, 9 in 10 customers are willing to spend more money with a business that provides amazing customer service.
2. Positive Word-of-Mouth Marketing
When you provide great customer experiences, you’re inspiring new brand advocates who provide positive word-of-mouth marketing (in-person and online) as well as referrals to your business. Research shows that 78% of loyal customers are happy to spread the word about your business to family and friends.
3. Greater Return on Investment
Since consumers trust referrals from people they know more than branded content and ads, the ROI of customer loyalty can be enormous. Plus, it’s much cheaper to retain than replace existing customers. The cost of landing a single new customer is much higher than turning a first-time buyer into a repeat customer.
4. Win Over More Customers
Did you know that 3 out of 5 consumers are willing to switch brands for a better customer experience? So, not only does providing exceptional customer service help you retain long-term customers, it also helps you attract new customers.
The Serious Cost of Poor Quality Service
On the other side of the coin, plenty of research demonstrates how costly bad customer service can be for a business. Brands that ignore the power of great customer service are not only missing out on the benefits listed above, but they’re also exposing their brand to a number of risks and costs.
The biggest drawbacks of poor customer service (and the associated lower customer loyalty) include:
1. Higher Cost to Maintain Customer Base
It can cost anywhere from 5 to 25 times more to acquire a new customer than to keep an existing one. So, a company that fails to prioritize customer service (and thus cuts their potential for repeat business) ends up spending significantly more money and time on customer acquisition than would otherwise be necessary.
2. Lose New Customers After One Bad Experience
You only get one chance to make a great first impression – and it’s crucial that you do! According to Consumer Reports, over half customers have walked out of a store due to poor customer service. Furthermore, 91% of consumers refuse to buy from a business again if their first experience is negative.
3. Permanent Damage to Your Reputation
Stories of bad customer experiences get told more often than positive experiences. One bad experience today could be enough to lose that customer and scare off their family and friends (and anyone who reads their online review) from ever giving your business a chance.
The Art: Building a Brand Your Customers Love
Part of delivering exceptional customer experiences and inspiring loyalty is building a brand that your customers are proud to support. This means establishing a common ground that connects you and your customers beyond the transactional value of their purchase.
How?
By demonstrating that your brand is for and against the same beliefs and ideas as your audience.
Positioning your brand in this way is a two-part process: you need to establish brand values that resonate with your customers as well as a common enemy or threat.
1. Shared values
Not only is it easier to connect with customers who agree with your brand values, but consumers who share your values are far more likely to remain loyal to your business. According to a study by the Corporate Executive Board, 64% of consumers cited shared values as the primary reason they maintain brand relationships – making it the number one factor driving customer-brand loyalty.
2. A Common Enemy
Anyone who’s attended any sports game ever can attest to the fact that nothing brings people together like rooting against a common rival or foe. You can take advantage of this by positioning your brand as anti-whatever your customers likely hate as well.
Whether it’s a competitor’s brand, a pain point, or a social issue, find something that your customers can all rally against with your brand. However, you want to avoid letting negative energy engulf all of your marketing efforts. It’s a good idea to integrate the enemy into some aspects of your marketing, but not every single piece of copy or article you ever publish. If possible, you should try to present the enemy as a problem that your product or service can solve.
How to Inspire Bigtime Customer Loyalty on a Small Budget
You don’t need to compromise great customer service to fit your budget.
For many small businesses, customer service provides the advantage they need to stay ahead of the competition, especially if they’re up against corporations and businesses with much larger budgets. Even if you can’t compete in terms of a marketing budget, price point, or brand awareness, you can always compete on customer service.
You don’t need a ton of resources to create positive experiences for your customers. Here are a few things you can do to inspire long-term customer loyalty on a modest budget.
Create personalized messaging to show each customer you care about them as an individual. This might include remembering a customer’s go-to purchase or addressing them by name when they visit your website - or even your physical store. For instance, a coffee shop could send a push notification to a customer’s phone welcoming them back for their morning latte.
Offer customized service and rewards to make your customers feel special. You don’t need to spend a lot to make a big impact, especially when it comes to providing high-quality customer service. In addition to creating a personalized experience (whether online or in-store), you can offer discounts tailored to your customers’ preferences. For instance, on their tenth visit to a local restaurant, a customer might receive a personalized coupon for half-off their favorite entrée.
Delight customers with unexpected bonuses. Businesses can win customers over with small, low-cost gestures known as “frugal wows.” This can be any type of surprise or bonus that doesn’t cost much to provide but delivers immense value by recognizing the customer’s needs and wellbeing. For example, giving customers a discount because they had to wait in line (even if they don’t complain!), offering free samples of products they might like upon checkout, or giving out extra mints with the dinner bill.
How to Use Customer Support to Boost Loyalty
Providing outstanding customer support can have a positive impact on customer loyalty to your brand. By focusing on the right channels, offering the type of support your customers want, and ensuring your agents know how to handle support issues efficiently, you can deliver experiences that make your customers want to come back again and again.
1. Focus your energy on the right support channels
While a dynamic omnichannel support strategy is ideal, it’s not always feasible for businesses to cover every channel. If there are certain channels your customers prefer, make sure your agents are available on those channels and able to reply in a timely manner.
If you do provide omnichannel support, be sure to use a system that puts all conversations into a single queue for easy management.
2. Take advantage of opportunities to provide proactive support
Whether you create a library of helpful resources on your website, use technology and system monitoring to detect problems before customers report them, or improve your customer onboarding, there are many ways you can offer the proactive support your customers deserve.
3. Help your agents develop both soft and hard skills
Your support agents need to know how to solve technical problems and understand how your product works. But you should also train them to communicate clearly and use positive language to frame each issue as something they’re resolving rather than something the customer is struggling with. Other invaluable soft skills include patience, attentiveness, and an ability to remain calm under pressure.
Developing a New Customer Loyalty Program from Scratch
A customer loyalty program is an excellent way to reward your customers, boost loyalty, and increase customer lifetime value. You might design your rewards program around special offerings, perks, or bonuses available only to customers who shop with you frequently. The reward can be anything from discounted merch, freebies, or free access to advanced features.
If you’re looking to develop a new customer loyalty program of your own, you should start by deciding whether you want to structure your program with multiple tiers or a single-level points system.
Weighing the Benefits of Tiered Offerings vs. a Simple Points System
Though a points system is the most common type of loyalty program, it’s not necessarily the best option for your business.
For many companies, a tiered reward system is ideal because it caters to customers at different levels of engagement. For instance, travelers who fly every week for work will have a very different experience with an airline’s loyalty program than parents who take their family on a trip every year or two.
It simply wouldn’t make sense to offer the same rewards system to both customers. Instead, the airline would implement a tiered loyalty program that offers special perks only available to frequent flyers – perhaps by bumping them up from ‘standard’ to ‘gold’ status so they can unlock larger rewards than a vacationing family.
That said, a basic points system can be an awesome solution and inspire lifetime loyalty if the rewards are worthwhile, easy to work towards earning, and everyone understands exactly what actions they must take to progress.
The right choice depends on your business model, the type of product or service you offer, and how often your customers are likely to buy from you.
How to Create Your Own Customer Loyalty Program
Once you decide on the general structure of your loyalty program, it’s time to develop the specific goals and rewards you want to offer. There are four important steps to follow.
1. Set a goal for your customers
What are your customers working towards? Why is the loyalty program appealing? What value does participating in it offer?
In most cases, the goal is some sort of discounts, freebie, or special bonus. For instance, companies that operate on a subscription basis often reward loyal customers with discounts or upgrades that can be unlocked with certain actions.
2. Define the actions they must compete
How can your customers progress towards the goal you’ve set for them? What actions do you want them to take?
Businesses that sell goods or services tend to develop loyalty programs around the number of purchases, visits, or amount spent, while subscription-based services often reward users for the number of referrals they provide.
3. Find a way to give customers a head start
You can use the concept of artificial advancement to motivate your customers to make use of your loyalty program. That is, you can give customers an initial bonus for joining the program or making their first purchase and use that to spark their interest in continuing to collect points.
For example, giving customers a stamp card with the first two spots already stamped creates the illusion that they’ve already made progress and are that much closer to earning a reward – even if they haven’t done anything yet. Whatever you offer, make sure you position it as a new customer special to justify the bonus.
4. Incentivize referrals from brand advocates
Give your best customers even more reason to spread the word about your business by giving them the power to hand out discount codes or special bonuses to their friends. This helps get more people signed up for your loyalty program and can create a snowball effect in the number of loyal customers you attract and retain.
The Science: Metrics to Measure Customer Loyalty
Once you’ve created and implemented your new loyalty program, the only way to make sense of your investment and ROI is to track the results. Sure, the primary goal of a customer rewards program is to increase loyalty - but how does this translate into tangible results? What effect is it having on your bottom line?
Here are four business metrics you should track to measure the effectiveness of your loyalty program.
1. Retention Rate
The happier your customers are with your product or service, support, and loyalty rewards, the more likely they are to make future purchases. That is, you’re more likely to retain them as customers. You can track your retention rate by measuring the percentage of new customers who continue to buy from you after their initial purchase.
If your loyalty program is effective, you should see a jump in retention as more people become rewards program members. Compare your retention rates among members and non-members to get a true sense of the impact your rewards program has on loyalty.
2. Churn Rate
Customer churn reveals the rate at which customers stop doing business with your company. With improved customer service and a successful loyalty program in place, you should see a drop in your churn rate. More of your customers will be happy with their experience, which means they’ll be less like to switch to a competitor and more likely to upgrade or make additional purchases.
3. Customer Effort Score (CES)
This is a one-question survey that gauges customer satisfaction with the level of service or support provided. To track CES, simply ask your customers “How easy was it for you to solve your problem today?” after a support call or interaction. Give them a selection of responses to choose from, ranging from “Very Easy” to “Very Difficult.”
4. Net Promoter Score (NPS)
How likely are your customers to recommend your product, service, or brand to their friends and family? Figuring out how many of your customers are active advocates for your brand isn’t as hard to quantify as you might think.
Simply ask customers to rate how likely are to recommend your business on a scale of 1-10. Then, subtract the percentage of customers who would not recommend your business from the percentage who say they would. The result is your NPS score.
Deliver Amazing Experiences to Bring Your Customers Back Again and Again
Not only is customer loyalty integral to generating brand awareness and expanding your customer base, but it’s also the key to long-term growth and success. Inspiring loyal customers is especially important for small or lesser-known businesses that can’t always compete on price or brand awareness.
So, what are you waiting for?
Start delivering extraordinary customer experiences, consistently high-quality support, and incentives for repeat business, and you can make customer loyalty one of your most powerful competitive advantages.
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